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Titans Column: Omid Kordestani

By - October 26, 2005

I interviewed Omid a couple of months ago for my B2.0 column, here it is in full.

TITANS OF TECH

The Wizard of Ads

Google’s Omid Kordestani conjured a formula that took its sales to $3 billion. Now he’s rethinking the world of advertising again.

Omid-1

By John Battelle, October 2005 Issue

You’ve heard of Larry Page and Sergey Brin, Google’s famous co-founders. But there’s another figure insiders know to be Google’s “business founder”: Omid Kordestani, the company’s 12th employee and senior vice president for global sales and business development. He may be the only sales guy on the planet who’s taken a company from zero to $3 billion in revenue — and from all appearances, he’s just getting started.

When Kordestani joined Google in the spring of 1999, the company had plenty of lava lamps, but no business model to speak of. Kordestani, a veteran Netscape salesman, recognized that the startup had one incomparable asset: its burgeoning Web traffic. Having overseen Netscape’s lucrative banner-advertising deals, Kordestani was a pro at leveraging the value of traffic.

Advertising — yes, those dead-simple text ads that appear alongside Google’s search results — accounts for 99 percent of the company’s revenue, making his formula for success seem deceptively easy. But where users once signed up to buy text ads with a credit card, Kordestani, 41, now has to manage relationships with agencies that want more control over their clients’ campaigns and with publishing partners who see Google as a prime source of online revenue — and a long-term threat to their media businesses. Business 2.0 sat down with Kordestani to find out how he keeps Google’s unstoppable sales machine rolling and what he sees coming next.

Is Google a technology company or a media company?



We’re absolutely deep in advertising, but let me clarify. The difference between us and our competition is that we innovate through applying technology. The angle of a media company is you’re packaging content or advertising inventory. We look at ads as commercial information, and that goes back to our core mission of organizing the world’s information. When people in the media world hear this, they say, “What are these guys talking about?”



Google has introduced a lot of products lately, but the engine of your revenue and profit is clearly your text-based AdWords. How did they start?

When I joined Google in 1999, we still hadn’t suffered the dotcom collapse, and a lot of money was still being spent on classic portal sponsorship deals, the kind I did at Netscape — multimillion-dollar deals. And at Google, I called those same clients and asked them to do a $1,000 or $5,000 AdWords test with me.

Once we proved that the text ads on Google could be successful and not interfere with the search experience, then it really turned into a science. We applied auction theory to maximize value — it was the best way to reach the right pricing, both for advertisers and for Google. And then we innovated by introducing the rate at which users actually click on the ads as a factor in placement on the page, and that was very, very useful in relevance.



Sergey Brin once told me that if AdWords didn’t work, he figured that Google could always run to DoubleClick as a life preserver. How close did you get to doing that deal?

Initially we debated whether to build our own ad product. Larry and Sergey believed we could develop a better product than the existing online advertising offerings, but we knew that they could be a fallback if Google’s ad program did not work.

Right after the collapse, people were cynical about online advertising. But we monitored our traffic and the click-through rate of the ads. It quickly became apparent that AdWords was working. The model was perfect because people were willing to try something out for $1,000 and see if they could get enough leads to justify additional spending. And as we gradually built a customer base, it had this nice trend line, up and to the right.

Did you ever realize how big this was going to get?



I didn’t. This is a difference between Larry and me. Larry said, “Are you crazy? I always thought it was going to be this big.” What was amazing about these founders was that during the hardest times, they had confidence that we could get through things. I’m very optimistic, but I’ve been through two unsuccessful startups, and I was at Netscape, where we had incredible challenges after competition heated up. So I wanted to be more paranoid about things.

Do you feel the pressure of being a public company now?



I certainly do, yeah. This level of growth is just unprecedented. But our business is different from traditional businesses. I’ve been in the enterprise software business, where the customer is trained to maximize discounts by waiting until the last day of the quarter to buy. You end up having the sales force trying to save the quarter on the last day.

The beauty of our business is we can’t do that. The way the auctions and the pricing models are working together involves lots of math — that’s the beauty of it. When it’s more predictable, when it’s more math-based, then in some ways you have more control. It’s not about doing a diving catch at the end of the quarter to make your numbers, but making sure all the dials on the dashboard are where you expect them to be.

What do you see as the future of advertising?



The measurability of online advertising will extend broadly to all areas of media. You have companies spending billions of dollars on television. As more and more consumers adopt technologies like TiVo, I think you’ll be able to have much more useful forms of advertising — more targeted, more measurable, and with new pricing models. Just imagine if we made it possible for our advertisers to quickly publish relevant ads that could range from the local plumber on one end to Super Bowl commercials on the other.

You’re now selling ads for a vast network of third-party websites. Is Google turning into an ad agency?



No. As a matter of practice, Google will work with advertisers in any way they want to work with us, whether directly, through a traditional agency, or through a specialty search-engine marketing firm. Google sees agencies as crucial. Agencies create and execute marketing strategies for their customers, and Google helps them execute those objectives.

You’ve taken some knocks from advertisers who feel frustrated because, they say, they can’t get anybody at Google on the phone. What are you doing about that perception?



People call us a black box because we make things too simple. I have a huge organization focused on this. And I apologize if people are not having the best experience. I take that seriously.

I’ve heard horror stories about click fraud. What’s your take?



We watch it very carefully. Whenever we find it, we are very good at refunding the advertisers. We’ve got some of our best researchers working on this. It becomes a little bit of a cat-and-mouse game where people become more sophisticated and try to beat the system, but ultimately we find it.

Google is the big target now. Microsoft is clearly gunning for you. Any feeling of déjà vu from your days at Netscape?

Netscape ran into a bad mix of competition and “gold rush” mentality in short order. Google, being a generation later, was able to learn from what Netscape did well and build on it. The best déjà vu is working with the distinguished Netscape alumni at Google.

John Battelle is program chair of the Web 2.0 conference and author of “The Search” (Portfolio, September 2005).

Find this article at http://www.business2.com/b2/subscribers/articles/0,17863,1104033,00.html

©2005 Business 2.0 Media Inc. All rights reserved.

Reproduction in whole or in part without permission is prohibited.

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Titans Column: Bob Wright

By - October 25, 2005

I’m behind in posting my B2.0 columns, but this one (paid sub required, so read on below) was fun to do….

TITANS OF TECH

The Internet Puzzle

NBC Universal CEO Bob Wright has put together all the pieces of the perfect media conglomerate. Will the Web tear it apart?

Wright

By John Battelle, September 2005 Issue

Bob Wright stepped into the big leagues of media last year, when he led NBC’s merger with Vivendi Universal Entertainment. The megadeal turned the TV network chief into a major Hollywood player, with movie studios, theme parks, and an expanded lineup of cable channels in his domain. At a time when big media is aching to get smaller — look no further than Viacom’s planned breakup into two companies — Wright decided to double down on creative content. And he might not even be done yet: In July the New York Post reported that NBC Universal is in talks to acquire DreamWorks SKG, a move that would beef up its movie portfolio.

So far, sticking with content looks like a smart bet. Even as NBC plummeted to fourth place in viewership, cable and film earnings kept the company, which is 80 percent owned by GE (GE) and 20 percent by Vivendi, growing in the double digits. But Wright has more on his mind than a replacement for Friends. Electronic piracy, the bane of the music industry, is starting to hit movies. Google, TiVo, and Yahoo are threatening to upend the video business. Wright still believes he’s made the right bet — content, he says, will have value, no matter who distributes it. But he openly admits that the Internet is making things “awkward” for him. Business 2.0 met with Wright to find out how he plans to sort things out.

What do you make of the fact that a major television executive like Lloyd Braun has gone to Yahoo?



I’m happy that things worked out so well. You have to admit, it’s surprising. A year ago ABC was down in the dumps and he and Susan Lyne got “Goodbye and good luck.” Both of their shows, Lost and Desperate Housewives, turned out to be rescue shows for ABC. It’s really quite remarkable that both of them are elsewhere now.

This kind of movement is evolutionary, though. We are all migrating to a digital world, and people move from content businesses to distribution businesses all the time. You happen to be picking one who went to the Internet. They could just as easily have gone to the wireless side or cable or satellite, or some other piece of the distribution game. But of those forms of distribution, the most awkward ones for us are the Internet search engines. And they are very important. I don’t mean to downplay them.

What do you mean by “awkward”?

Our business is developing, producing, and marketing programming. By choice, not chance, we have taken the position that we are not tying ourselves to one or two forms of distribution. We’re going to try to make our programming as available and as marketable to as many forms of transmission as possible. We have broadcasting, cable, satellite, DVDs, and our theatrical base. We’ve seen wireless join recently, though it’s still very early there.

But I think the one that we haven’t really embraced as much as we’d like is the Internet, which is represented by Lloyd and his compatriots. The awkwardness of the Internet is that in other forms of distribution we have a relative degree of comfort with the security of the programming that we’re transmitting. We know there’s leakage from theaters, we know there are stolen and counterfeited DVDs, we know that people steal satellite cards and cable boxes. But each one of those channels has its own form of security. When we get to the Internet, it’s just much harder. It’s early in the process, and you don’t have that level of protection.

Do you think the music business has solved that problem?

I ask that question all the time. And I get different answers from people in the music industry. I think they feel obligated to say that iTunes has been very beneficial, but then they point out that they really can’t live on the revenue. They look at it as sort of supplemental income. It brings some level of recognition that there is real value in their intellectual property, even if it’s only 99 cents, that it’s valuable, and that people are respecting that it has some value. But I don’t think any of them think it’s an answer. And the reality of it is that the peer-to-peer aspect of Internet trading is still wide open.

The history of music was radio and a lot of free promotion. It never had the history that motion pictures did, where people paid for it from the beginning, whether it was a nickel at the nickelodeon or $12 today at a theater. Television has always had advertising support with it. It was never really given away.

Online, leaders like Yahoo haven’t figured out the value of video content. And we’re grappling with that. We’ve got to find a way to get there. We have to be able to provide programming in such a way that we don’t damage our existing distributors intentionally or even accidentally. The process of how we embrace the Internet isn’t clear.

Won’t we be able to combine advertising and video over the Internet?

The model is just taking form. When I talk to advertisers or agencies, it’s not clear exactly what they want out of the Internet. We’re not there yet. It’s not lost on me that video seems to be the fastest-growing segment in search. And Google and Yahoo recognize that they’re going to have to start either producing or licensing content. And I think it makes a lot more sense to license because there’s so much content available.

News is one of your key content operations. You recently said that despite all the negative stories about the broadcast news business, the sky wasn’t falling. Why?

There’s always going to be a news business. That’s the one thing that’s for sure. And there’s always going to be a large audience for it. The reported death of network news has been the slowest death of all times. You are so overcome today with alarmingly huge choices for information that there is a need for a place for people to come to get a condensed but big view of what’s happening. If I go online, it’s hard to find that context.

Now that you have Universal, prime-time advertising is only 15 percent of your business. But it’s still a critical barometer of the NBC network’s health. What has to be done there?

We do have work to do. Prime time is the major league of entertainment programming, and you’re trying your very best to get the largest possible audience. We’re going through a period here where we don’t have as many winners as we’re accustomed to having. I’m not denying that we would like to have some wonderful replacements for Friends or ER, but, you know, they don’t all show up on the same day.

Does the advent of video-on-demand and the DVR mean the 30-second slot is an endangered species?



No, I don’t think so. Some of the cable operators have said to me, “Bob, you know, if you’ll give us your programs and let us put them in a video-on-demand basis, then we’ll make sure we attach the advertising to them.” That’s fair. I think we can have our cake and eat it too. I think people are going to get the ability to pick and choose and we’re going to find a way to attach advertising to it. Almost like Yahoo does now with search.

Is Yahoo a partner or a competitor?



Six or seven years ago, Yahoo was the king of the Net. Then it went into the ditch with everybody else. After the crash in 2001, the people there went back to their roots and rebuilt Yahoo as a search engine. Terry Semel, when he came in there, said, this is a great deal, but other people can be search engines, so we’ve got to differentiate ourselves here. Yahoo has a significant future. But it isn’t quite clear what it is.

John Battelle is program chair of the Web 2.0 conference and author of “The Search” (Portfolio, September 2005).

Find this article at http://www.business2.com/b2/subscribers/articles/0,17863,1096191,00.html

July Titan: Anne Mulcahy

By - August 01, 2005

And here’s July (up soon is Bob Wright, CEO of NBC, then Omid Kordestani, of Google):

AnnemTITANS OF TECH

Turning the Page

Bit by bit, Xerox CEO Anne Mulcahy is digitizing the copier company she helped save.

By John Battelle, July 2005 Issue

She was not the obvious choice to lead Xerox through its darkest hour, but four years and one miraculous turnaround later, no one is questioning Anne Mulcahy’s leadership anymore. A nearly 30-year veteran of the company, Mulcahy doesn’t like to dwell on her much-lauded role in helping Xerox avert bankruptcy. She’s too busy trying to get the company growing again.

Long before any of us Googled anything, we all Xeroxed everything. The company’s iconic status came despite a scant presence in homes; although Mulcahy had established Xerox’s consumer printer business, she shut it down when the company was strapped for cash. (By making tough decisions like that, Mulcahy cut the company’s $14 billion debt load almost in half.) Xerox now mostly serves large businesses, not just selling them copiers but managing “information flow” by scanning and storing documents in digital form. And despite the spinoff of its fabled Palo Alto Research Center, Xerox has still managed to innovate: It now gets two-thirds of its $15.7 billion annual revenue from products and services that are less than two years old.

Having turned the company around, what will Mulcahy do next? Many people floated her name as a potential replacement for Carly Fiorina at Hewlett-Packard. A Xerox PR staffer told the New York Times that Mulcahy would “never, ever” consider leaving. “Why don’t you just put a fricking lock on the door!” Mulcahy says with a laugh. If she has more successes like the turnaround, Xerox’s board had better do just that. Business 2.0 sat down recently with Mulcahy to learn more about her plans.

Are you bored yet with being asked how you turned Xerox around?



Yes! It was interesting, but it only led up to the thing we really care about, which is succeeding, not just surviving.

How do you get a culture to move beyond survival and start innovating?



The most critical thing — even more critical than getting the company financially stable — was recognizing that nobody’s in this just to survive. You have to make sure there’s a compelling enough story that the great people will stick with you during the difficult times, that they will hang tight for the possibilities of the future.

Let’s talk about that future. What happens to the document on the Internet? Do you consider Google a competitor?

It would be terrific if Google’s model worked in larger enterprises, but the world those businesses live in has not only tons of digital technology but also vast amounts of manually intensive paper-based processes. Making information more accessible, more personalized, is a huge opportunity. Search as a utility is a wonderful thing, but it’s really about the journey from paper to digital for our customers.

So what does going from paper to digital involve? Are you just talking about scanning documents?

(continued in extended entry)

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Titan Column: Homer

By -

I’m getting caught up on my B2.0 column posts, here’s June:

HomerTITANS OF TECH

Reinventing Television

Silicon Valley veteran Mike Homer wants to move TV shows from the airwaves to the grid. If he succeeds, we’ll never look at video the same way again.

By John Battelle, June 2005 Issue

Editor’s note

In the Titans of Tech column in our June issue (“Reinventing Television”), we ran an interview with Mike Homer, CEO of Kontiki, conducted by contributing writer John Battelle. After the issue was sent to press, Battelle announced a small round of funding for his new business venture, FM Publishing, in which Homer is a minority investor. According to Battelle, Homer’s involvement in FM took place well after the interview and editing of the column were done.


(My post about my dumb mistake is here)

At every important turn in Silicon Valley’s recent history, Mike Homer has been there. He got his start as an engineer and later a marketer at Apple, then joined Go, a handheld device startup that, despite $100 million in funding, failed to find its market. From there Homer landed at Netscape, just in time to see the company’s spectacular success and equally spectacular slaughter at the hands of Microsoft. After Netscape was sold to AOL, Homer jumped ship to launch Kontiki, a Net-based video-serving business, where he is still chairman, and invested in a slew of technology startups, including TiVo and Google.

For years Kontiki has labored in obscurity, perfecting a video-delivery service for corporate clients. But all along, Homer had his eye on the consumer market. He now believes that the time has finally come to put video on the Net — and he’s betting his money and his reputation on it. In April he and former Netscape cohort Marc Andreessen launched the Open Media Network, an audacious nonprofit that intends to host video files and create an Internet TV guide. Business 2.0 caught up with Homer on the day the network launched.

Why are you calling the Open Media Network “the future of public broadcasting”?

OMN is a free public service that enables consumers to view and publish legal content on the Internet. Digital distribution technology is now capable of doing a good job with video on the Internet, but there are still a lot of factors within the industry that keep producers from putting a wide variety of content online. We wanted to find a segment of the broadcasting industry that was willing to move first — and that’s the Public Broadcasting System.

So what’s holding back the rest?

First is concern over cannibalizing their current channels of distribution. Second is concern over piracy. And the third is the lack of a demonstrated business model.

How does OMN differ from other recent offerings, such as Google’s planned video service?

(continued in extended entry…)

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On Disintermediation

By - July 12, 2005

AdageI wrote a piece for AdAge (reg required) which ran this week. It’s here, and I’m told that soon I can link to it outside of registration. I’d love your feedback.

ARE YOU BECOMING IRRELEVANT TO YOUR CUSTOMERS?

Why Marketers, Agencies and Media Execs Need to Understand Disintermediation

July 12, 2005

By John Battelle

Disintermediation is overrated.

Those who fear disintermediation should in fact be afraid of irrelevance — disintermediation is just another way of saying that you’ve become irrelevant to your customers. It doesn’t mean there isn’t a customer, or middlemen of some sort who service that customer, or that the core proposition of your business has disappeared. It just means you’re in a bit of a rut, and as much as you might pine for the past, it’s probably time to rethink things before it’s too late.

Put another way, disintermediation happens for a reason. Rather than staring at its result (and shaking our fists at Google and TiVo), let’s start at the beginning. What’s really going on here?

(continued here)

Titans of Tech Column: Sky Dayton

By - April 27, 2005

B2.0-1I personally can’t wait till full 3G nets hit the US. I spent some time with Sky talking this and other stuff over recently, and the result is my current column in B 2.0.

TITANS OF TECH

Surfing the Virtual Wave

EarthLink founder Sky Dayton helped connect our PCs to the Net. Now he wants to put Korea’s version of wireless broadband on our cell phones.

By John Battelle, May 2005 Issue

For more than a decade, no matter how you’ve wanted to connect, Sky Dayton has been there with the hookup. The coffee shop owner turned Net entrepreneur started EarthLink and built the Internet service provider into a billion-dollar business. Then he wove a patchwork of Wi-Fi hotspots into a nationwide network, Boingo. Now he wants to reboot the cell-phone business.

All along he’s been guided by two ideas: You don’t have to own infrastructure to sell service, and customers care about applications, not technology. That’s why EarthLink and Boingo thrived while rivals spent hundreds of millions of dollars on Internet backbones and Wi-Fi routers, only to go out of business.

For his latest venture, true to form, he’s renting out space on cell-phone networks to give American customers something that South Korea has had for years: high-speed Internet access over a 3G (third-generation) wireless network and sophisticated handsets packed with the latest technologies. While DSL is fast and Wi-Fi is fun, both tether you to a limited area. 3G truly puts the Internet “in the air,” as Dayton likes to say. EarthLink, where he is still a board member, and Korea’s SK Telecom are putting $440 million into the new venture, SK-EarthLink, for which Dayton will serve as CEO while it prepares for a launch of service this year. Business 2.0 sat down with Dayton in his Santa Monica, Calif., office to get a preview of the wireless future.

How did South Korea get so far ahead of us in wireless?



Part of it is technical. They bet on Qualcomm (QCOM) technology, which is now the basis of all 3G networks. Lately they’ve even overtaken Japan as the hothouse of wireless development. Sprint and Verizon (VZ) and Cingular are just now rolling out the high-speed technology that SK Telecom deployed more than three years ago. We’ve been living in the past. The other part is cultural. Koreans study and work a lot harder. It’s no wonder they got so far ahead.

So what do they have that we don’t?



The applications that SK has built are a glimpse into the future — live video on a handset, multiplayer games, and location-based services. To provide those kinds of services, it created a huge infrastructure: billing, video streaming systems, gaming, mapping systems, all that stuff. We’re bringing that over lock, stock, and barrel and plugging it into the U.S. cellular infrastructure.

Why aren’t you building your own network?



I have a lot of respect for the capital and focus it takes to be successful at building infrastructure. It’s just not my core competency. EarthLink already had mobile virtual network operator agreements with Verizon and Sprint, and we contributed them to the joint venture. We have a foundation to build a house on now.

Which applications will draw users to the service first?



There are many I’m not ready to talk about yet. But there’s music and video and location-based services. On my first trip to Korea last summer, I was at a restaurant, and one of the guys was late. I asked his colleague, “Can you call him and see if he’s close so we can get on with lunch?” He said, “Just hold on a second.” So he flips open his phone, pokes around a bit, shows me a little dot moving on a map on his screen, and says, “He’s almost here.”

(continued in extended entry)

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Latest Business 2.0 Column: Tom Glocer, Reuters

By - February 03, 2005

Biz2TITANS OF TECH

Screen Test

Reuters CEO Tom Glocer wants to build an online broadcast network. Can the venerable newswire take on Fox and CNN?



By John Battelle, January/February 2005 Issue

During its formative days, Reuters was a relentlessly innovative company, using the best tech it could get its hands on to carry the news. Before the telegraph came along, it beat competitors by using carrier pigeons to send information about stock trades. But back in the 1980s, Reuters decided to wholesale its newsfeeds to Ted Turner — and watched CNN become a billion-dollar business. As broadband video blossoms on the Web, Reuters CEO Tom Glocer doesn’t want his London-based company to make the same mistake twice.

In 2003, 10 years after joining Reuters’s U.S. law department, Glocer worked his way to the corner office — the first American and first nonjournalist to helm the venerable company. He immediately restructured it into four customer-focused divisions, a move that’s saving a billion dollars over five years and has sent the stock price up nearly 50 percent in the past year. What’s more, he’s managed to pull this off while sending hundreds of journalists to Iraq and losing some in the line of fire.

Now Glocer is shaking up Reuters’s highly respected newswire business. Think of the newswire as wholesale; Glocer, in essence, is using the disruptive power of the Internet to get into retail. The move would have been unthinkable 20 years ago for reasons of both cost and culture. But Glocer has learned the hard way that you don’t make much money selling your content to others. Successful media companies, he says, make their money either by creating branded products or by controlling distribution. Glocer recently sat down with Business 2.0 to explain how he plans to do both.

Despite the costs of the ongoing conflict in Iraq, your stock went on a tear in 2004.



The market sees Reuters as a classic recovery story. By the end of 2006, we will have taken $1.7 billion out of our costs since we started restructuring in 2000. Our core subscription revenues are still declining, but the Street is increasingly confident that we can return these to growth next year.

Last summer you pulled your news off Yahoo. Why?



For 153 years Reuters has run a wholesale media strategy. We produce raw text, video, and pictures and make it available to the world’s publishers, who in turn slap their brand on it, develop brand loyalty, and aggregate an audience. Go back to 1980 and ask yourself, as I often do: Between Reuters and CNN, who had the greater assets and likelihood to launch an international news network?

Did Reuters consider competing with CNN back then?



I don’t know. I wasn’t there. But I do know that Ted Turner has said that they kept looking over their shoulder because they couldn’t believe their luck. When they were starting out, they really were the Chicken Noodle Network. Reuters had bureaus in 200 places and a hell of a brand name. Who had ever heard of CNN? More recently, Reuters repeated the mistake — we were the wholesaler to Yahoo and others.

But this time you pulled out.



(continued in extended entry)

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Tech Review: New Form of Advertising

By - December 23, 2004

Trcover

I am breaking my holiday silence as a few readers have reminded me that I forgot to post a link to a column I wrote up for Technology Review magazine. It’s basically a rewrite of my Sell Side Advertising post, but to make the concept a bit more approachable (or perhaps to ruin it) I changed the name to Publisher Driven Advertising. In any case, as always I owe a debt to Ross Mayfield and many others for the ideas contained within. And it’s my hope that in 2005 we can take this idea and see where it might run.

Biz 2 Column: Dave Dorman

By - October 27, 2004

b2_396x73Dave Dorman is a hoot to talk with. Who else would call his competitors a “leper colony”?
This interview is in this month’s Business 2.0.

TITANS OF TECH
Dorman’s Calling
The CEO of AT&T is on a mission to restore his company to greatness. His plan: Use the Internet to unplug the competition.

By John Battelle, November 2004 Issue

Is David Dorman a telecom lifer or a startup survivor? In truth, he’s both. He started out working at Sprint, then became CEO of Pacific Bell, where he created the first regional-phone-company Internet service provider. He then took a detour into the dotcom world, where he led PointCast, a much-hyped “push” technology company, until shortly before it went under. Chastened, he returned to the business he knew best: telecom.

But as it turned out, someone who’d tried out an untested new business model was exactly who Ma Bell would need. When Dorman joined AT&T (T) in late 2000, then-CEO Michael Armstrong held a grand vision for integrating what Dorman calls the “magic five” — local, long distance, high-speed data, wireless, and video. But things didn’t turn out as planned. Instead of reigning over a vast telecom empire, Dorman ended up leading AT&T through the most perilous period in its 127-year history. Teetering finances forced Armstrong to divest wireless and cable. Factor in a recent regulatory decision that Dorman claims left him no choice but to abandon AT&T’s residential phone business — which represents about 25 percent of the company’s revenue — and it’s no wonder Wall Street is tepid about AT&T’s prospects.

Dorman responds by pointing out that AT&T is the clear leader in providing networking to Fortune 500 companies, and, he says, his competitors are in shambles. More intriguing, he has a strategy to put AT&T back on top.

It’s clear that Dorman grasps the disruptive nature of the Internet. Right now the Net is changing voice — Dorman really lights up when you ask him about CallVantage, AT&T’s voice-over-IP service. But at some point, it could lead to video-over-IP, a potential competitor to cable. Add it all up — the old long-distance and high-speed data businesses, CallVantage, a new wireless play, maybe even video — and Dorman may be rebuilding AT&T into the company he once thought he would lead, one magic-five application at a time.

When you announced you were leaving the residential telephone business, your share price dropped. Why do you think the markets reacted negatively?

We don’t have to have residential telephone business to be a successful company. So many of the stories I’ve seen say, “They’re going to go away. It’s over.”

That question’s on my list here …

This is a $30 billion company, and consumer is $8 billion of that. I’ve got the best business-services franchise in the world. And I’ve got a leper colony of competitors. We know what MCI’s been through. Sprint — they’re a wireless company, just ask them. And you look at the rest of the guys — Qwest (Q), XO Communications, Wiltel, Level 3. Is a major company like Citigroup (C) or J.P. Morgan Chase (JPM) going to bet on someone like that vs. going with us?

Your industry has not covered itself in glory these past five years — MCI, for starters.

You know something people didn’t understand? A big part of Tyco’s (TYC) value was TyCom — an optical network. And Enron had $30 billion-plus of its market cap based on its broadband-trading business. So the three biggest frauds in American history had a direct impact on telecom. Add Qwest and Global Crossing, and we had five major catastrophes in the industry. AT&T didn’t cause that; we just have to deal with the aftermath.

Must be fun to be a telecom CEO.

It was a great thing 10 years ago. We’re in a cycle. The most frustrating, gut-wrenching thing for me is, I can’t tell you how long the cycle’s going to last. But the overcapacity will get reconciled. If we didn’t have Qwest fighting for its life and MCI fighting for its life, prices would stabilize.

(more in extended entry…read on, it’s a fun one)

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B 2.0 Column: Erik Blachford, CEO of IAC Travel

By - October 08, 2004

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TITANS OF TECH
A Man Who’s Going Places
Erik Blachford controls half of the online travel market — and Barry Diller’s Net ambitions are riding on his shoulders. So why is the CEO of IAC Travel so relaxed?

By John Battelle, October 2004 Issue

Within Barry Diller’s online empire, InterActiveCorp, there’s no business more vital than IAC Travel — which makes Erik Blachford his most important lieutenant. Overseeing Expedia, Hotels.com, Hotwire, and other travel properties, Blachford is responsible for 37 percent of IAC’s revenue and more than two-thirds of its profits. Still, even as IAC Travel’s growth has been extraordinary — it’s now the third-largest travel agency in the world — it’s feeling the pressure from any number of competitors, including its suppliers, competing online services, and even portals and search engines. To keep growth going, Blachford is expanding into Europe and Asia and has dived into the $100 billion corporate travel market. But what he’s really dreaming of is re-creating the perfect travel agent online.

Barry Diller was once asked about IAC Travel, and he replied by saying something to the effect of “You think this is the future of travel; I think it’s the future of everything.” Does he see what you’re doing in travel as indicative of the future of the entire Internet?

InterActiveCorp, at the highest level, is just a big bet on consumers using the Internet for more stuff. If you fundamentally believe that the Internet is going to provide people with richer and better information for making decisions, then you have to make bets across a pretty wide variety of things. We’ve got high airline ticket prices, and hotel rooms are expensive, so the dollar figures involved get pretty eye-popping pretty fast, and that’s one of the reasons people like to point to the travel category.

I understand that more than 20 percent of the travel business is now booked online.

blachfordIt’s closer to 25 percent this year. It’s probably going to around 35 percent by 2006. By the time you get to 2010 or 2011, we think between one-half and three-quarters of leisure and unmanaged business travel — everything not handled by corporate travel agencies, that is — should be online.

With growth prospects like that, why did IAC take a hit in the last quarterly earnings? Why does Wall Street not give it the same earnings multiple as its peer group?

Well, you had a couple of different things going on. On the one hand, the whole category did get beaten up pretty badly. So there is something to be said for people just looking at the overall growth trends quarter over quarter in online travel and saying, “Boy, that didn’t seem quite as quick as we were expecting.”

(continued in extended entry)

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